Federal Reserve: Bank of America can serve cryptocurrencies with confidence without worrying about penalties

Written by: Blockchain Knight  

Michelle Bowman, the Federal Reserve's Vice Chair for Supervision, acknowledged that cryptocurrency companies have faced disruptions in banking services due to regulatory uncertainty.  

Speaking at a blockchain symposium in Wyoming on August 19, Bowman also announced a fundamental shift in the Federal Reserve's stance toward blockchain innovation.  

She revealed that the Federal Reserve removed the "reputational risk consideration" from bank supervision at the end of June to eliminate barriers for financial institutions providing services to legally operating digital asset companies.  

The Fed official stated: "Your (cryptocurrency) industry has long faced obstacles due to bank regulators applying vague standards, issuing conflicting guidance, and making inconsistent regulatory interpretations."  

Bowman emphasized that banks should not face penalties for serving legally operating customers, noting that customer selection decisions "fall entirely within the purview of bank management" and should not be intervened by regulators.  

In addition, she mentioned that the Federal Reserve has shifted from an "overly cautious mindset" to supporting the traditional banking system in embracing blockchain technology.  

She warned that regulators must choose between "establishing a technical framework" and "allowing innovation to bypass banks entirely"—the latter could weaken the economic relevance of the banking industry.  

Currently, the Federal Reserve is updating its examination manuals and regulatory materials to ensure the long-term implementation of the "removal of reputational risk" policy.  

Bowman outlined four core principles guiding the new direction of the Federal Reserve's digital asset regulation.  

"Regulatory certainty" is the primary principle, aiming to address the industry's concern of "daring not to invest in blockchain development due to the lack of clear regulatory standards."  

Bowman questioned: If companies know that cooperating with banks will face regulatory uncertainty, will they still choose to cooperate instead of turning to alternatives outside the banking system?  

"Targeted regulation" constitutes the second principle, requiring regulators to assess application scenarios based on specific circumstances rather than regulating based on "worst-case" assumptions.  

The Federal Reserve must recognize the unique differences between digital assets and traditional financial instruments while avoiding a one-size-fits-all approach that fails to address actual risk conditions.  

"Consumer protection" is the third principle, ensuring that customer-facing products comply with existing consumer protection regulations, including prohibitions on unfair, deceptive, or abusive practices.  

The digital asset regulatory framework must incorporate the Bank Secrecy Act and anti-money laundering requirements while maintaining banks' safety and soundness standards.  

"U.S. competitiveness" forms the final pillar of the framework, aiming to position the United States as the world's premier destination for innovation. Bowman warned that without a reasonable regulatory structure, America's long-term leadership in fintech development could be at risk.  

Bowman announced that the Federal Reserve's "innovation supervision" work will be reintegrated into reserve bank examination teams, restoring regular regulatory processes for banks' innovative activities.  

She proposed allowing Federal Reserve staff to hold small amounts of digital assets to gain a deeper understanding of how blockchain operates, comparing this necessity to learning through practice rather than theory.  

Editor's note: This marks a stark shift from the previous stance of the U.S. government, particularly that of former SEC Chair Gary Gensler. Gensler, who taught university-level blockchain courses at MIT, admitted he had never held any digital assets or personally executed a transaction—meaning he had never actually engaged with blockchain using his own funds.  

The Federal Reserve recognizes that tokenization can help accelerate the transfer of asset ownership while reducing transaction costs and settlement risks. Bowman noted that banks of all sizes, including community institutions, can benefit from the efficiency gains brought by asset tokenization technology.  

Furthermore, she emphasized that the passage and presidential signing of the *GENIUS Act* have positioned stablecoins as a critical component of the financial system, which will have far-reaching impacts on traditional payment channels.  

Bowman called for industry participation to help regulators understand blockchain's ability to solve more problems beyond existing application scenarios.  

She specifically requested industry input on how new technologies can be used to combat fraud, viewing this as a key opportunity for the Federal Reserve to collaborate with the digital asset sector.  

Bowman concluded: In building a more modern and efficient financial system, innovation and regulation complement each other rather than oppose each other.  

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